What is a Stock Keeping Unit (SKU) in Retail?

Navigating the world of order fulfillment can be challenging, especially if you’re new to ecommerce. Developing an effective order fulfillment strategy requires understanding various components of inventory management, including the Stock Keeping Unit (SKU).

In this article, you’ll learn about SKUs, their usage, and how to calculate the number of SKUs in your inventory.

What is a Stock Keeping Unit (SKU)?

A Stock Keeping Unit (SKU) is a scannable alphanumeric code used to identify a specific product for inventory control. These codes are typically printed on product labels and represent various product attributes such as color, size, and brand. SKUs are used by retail stores, fulfillment centers, warehouses, online retailers, and catalogs to track inventory and enhance overall inventory management.

Using SKUs and Barcodes

A SKU can be any sequence of numbers you choose. Unlike Universal Product Codes (UPC), SKUs are unique to each retailer. It’s important to ensure that everyone in your company understands your SKU system since SKUs are unique identifiers that can be easily interpreted without special equipment or software.

For example, a SKU for a red leather handbag in a medium size might look like this: HBG-RED-MED. This format is easy to read, conveys essential information about the product, and follows a clear naming convention.

How SKUs are Used in Ecommerce

SKUs help you manage your inventory for both inbound and outbound logistics and are particularly useful when working with a third-party fulfillment provider. When partnering with a new third-party logistics (3PL) provider, you will likely be asked how many different SKUs you have in your inventory. This helps the 3PL determine the necessary warehousing and storage space, as well as the complexity of your orders.

Many 3PLs store each unique SKU in its own bin or shelf space to optimize picking lists, making the picking and packing process more accurate and efficient. A comprehensive inventory management solution offered by a 3PL may include the following SKU-based services:

  • Syncing inventory by automatically pulling SKUs from your online store
  • Displaying real-time inventory levels by SKU
  • Setting reorder points for each SKU based on predefined quantities
  • Bundling different SKUs for promotions
  • Merging the same product across ecommerce platforms
  • Kitting SKUs and assembling them in a specific way before shipping

Overall, SKUs help 3PLs track your inventory and provide customized analytics and services for your ecommerce business.

How to Calculate the Number of SKUs in Your Inventory

To calculate the number of SKUs in your inventory, consider all the different product variations you offer, such as color, size, and price. The number of SKUs in your online store will equal the number of product variations.

For example, if you are a small clothing retailer with a hoodie that comes in 3 styles, 2 colors, and 4 sizes, your SKU calculations would look like this: You have hoodies available in black and grey, and they come in zipper or pullover styles. Each style is available in small, medium, large, and extra-large sizes. Therefore, you would have black zipper hoodies in small, medium, large, and extra-large sizes; black pullover hoodies in small, medium, large, and extra-large sizes; grey zipper hoodies in small, medium, large, and extra-large sizes; and grey pullover hoodies in small, medium, large, and extra-large sizes.

With 2 colors, 2 styles, and 4 sizes, you end up with 2 x 2 x 4 = 16 variations, giving you a total of 16 SKUs.

How 3PL Center Can Help

If you’re seeking an end-to-end fulfillment solution that includes advanced inventory management, 3PL Center can assist you. At 3PL Center, we leverage our sophisticated Warehouse Management System (WMS) to provide real-time inventory tracking, rate shopping, and detailed reporting on SKU performance. With our strategically located warehouses across the country, we ensure efficient and cost-effective shipping.

Seamlessly Integrating SKUs into Retailer Fulfillment

Our expertise extends beyond product management; we excel at seamlessly integrating with retailers and offering tailor-made logistics solutions. Our direct integrations with renowned names demonstrate our top-tier retailer fulfillment capabilities. Using Electronic Data Interchange (EDI), we establish efficient connections that go beyond simple transactions. This integration spans inventory systems, allowing us to manage and fulfill orders while ensuring efficient processing of styles, sizes, and order variances. This guarantees orders are accurately routed, unloaded, labeled, and readied for retailers’ picking and packing processes.

Our services extend to Fulfilled by Merchant (FBM) models, amplifying our reach by integrating with most major platforms. This enables us to efficiently fulfill direct-to-consumer (DTC) orders, enhancing your market reach and customer satisfaction.

Retailer Labeling and Requirements

Our fulfillment approach thrives on flexibility, catering to a wide range of styles, sizes, and unique routing preferences. When working with partners who manage orders for huge retailers, we meticulously handle labeling, packaging, and dispatching in accordance with each retailer’s distinct requirements.

We use the Uniform Code Council 128 (UCC128) label standard to carefully tailor labels to the specific requirements of each retailer. Advance Shipping Notices (ASNs) are crucial in this process, as they enable us to affix distinctive labels to each box, efficiently decoding routing information and pinpointing the intended stores with precision. By harnessing the UCC128 standard, our customized labeling guarantees accurate identification and routing, resulting in seamless deliveries every time.

Shipping: Navigating the Last Mile

Once orders are picked, packed, and prepared, the distribution phase begins. Whether it’s shipping by FedEx, UPS, USPS or routing orders on designated LTL or FTL trucks, we ensure a streamlined process. Shipments are routed meticulously, often needing collaboration with the retailer’s designated transportation, ensuring that the right product reaches the right destination while adhering to the specified retailer standards. This stage, though cumbersome, is crucial—every transmission back and forth must be seamless, ensuring that retailers can seamlessly integrate these incoming products into their systems without hiccups or potential chargebacks.

Ultimately, our goal is twofold: optimizing the operational efficiency of retailers by delivering precisely what they need and ensuring that end customers receive their orders promptly, accurately, and in pristine condition. At 3PL Center, retailer fulfillment isn’t just a service; it’s a commitment to precision, integration, and operational excellence.

Partner with 3PL Center Today

SKUs are an integral part of inventory management, essential for successful ecommerce fulfillment. While they may seem confusing at first, understanding and utilizing SKUs effectively can streamline your inventory management process. Discover how partnering with an expert ecommerce fulfillment company like 3PL Center can help you manage your SKUs and improve your overall inventory management. 

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